To Franchise or not?

Many people weigh the options of starting a business from scratch and simply buying a franchise business. However, there are some advantages and disadvantages of making either choice. This article will discuss how a franchise works, businesses that can be franchised, and some advantages and disadvantages of buying a franchise.

According to Investopedia [franchise definition (investopedia.com)], “a franchise is a type of license that grants franchisee access to a franchiser’s proprietary business knowledge, processes, and trademarks, thus allowing the franchisee to sell a product or service under the franchiser’s business name. The franchisee usually pays the franchisor an initial start-up fee and annual licensing fees”. Before an individual can trade as a franchisee, they will need to sign a franchise agreement. In this agreement, they may agree to several terms regarding how they pay the franchisor. For example, they may be required to pay a franchise fee, a percentage of the revenues in royalties, and they may be required to pay an amount for advertising. The franchise agreement may have a mediation or arbitration clause as well.

There are several reasons businesses choose to franchise; one key advantage is that a franchise allows you to be a step ahead of the competition. Another reason is that it removes some grey areas and question marks that come with starting a business and provides a sound support system that you would not have when you start on your own. Others include:

· A proven business model – by buying a franchise, you have answered the question as to whether the business idea works or not. In addition, you have a track record of sales that is up to date based on a held niche in the market.

· Established goodwill – a franchise is a brand that is already established and has an existing customer base. Therefore, as the franchisee, you benefit from immediate recognition by existing customers and potential ones.

· You are not alone – a key advantage that comes with buying a franchise is that there are several forms of support that may be available to you. This includes employee training programs, inventory management as well as operational processes. In addition, you have day-to-day support for any moment that you require assistance.

However, franchises come with their disadvantages: the lack of control over many aspects of the business. Other disadvantages include:

· You have a boss – franchisees are governed by several rules and procedures set by the franchisor.

· For better or for worse – any adverse effect on the brand affects your business directly. 

· The payment of royalties ends when the franchise agreement ends.